Event after the reporting period is favorable or unfavorable event that occurs between : Show
There are two types of events after the reporting period:
Adjusting eventsAdjusting event is the event that arose after the end of the reporting period, but provides further evidence of conditions that existed at the end of the reporting period. Accounting treatment: financial statements should be adjusted for adjusting events. Going concern: If a management indicates after the end of the reporting period that it intends to liquidate the business or cease trading or there is no other realistic alternative, then the financial statements should NOT be prepared under
going concern basis. Non-adjusting eventNon-adjusting event is an event after the reporting period that indicates conditions arising after the end of the reporting period. Accounting treatment: do not adjust financial statements for non-adjusting events. The following disclosure shall be made:
Accounting for dividends: If an entity declares dividends to shareholders after the end of the reporting period, the entity shall not account for those dividends as for a liability at the reporting date. If dividends are declared after the end of the Reporting Period, but before the financial statements are approved for issue, the dividends are disclosed in the notes to the financial statements. LawsuitABC has been sued for the damages caused, but just before the year-end the lawyers believe that the change of losing the case is remote and thus no provision has been created. On 15 February, the court approved CU 1 mil. damages agains ABC. How should this event be recognized in the financial statements? Solution:It depends on the date when the financial statements have been approved and authorized for an issue. If it is after 15 February, then the event is adjusting, because the new information indicated that ABC was liable for the damages caused prior the end of the reporting period. The journal entry is:
If the financial statements were authorized for an issue before 15 February, then by definition it is NOT the event after the reporting period and it out of scope of IAS 10. Bad debtsDEF has a receivable towards major client amounting to CU 500 as at 31 December 20X1. On 10 January 20X2 there is a big fire in the client’s premises and as a result, the client is not able to pay the full amount to DEF and DEF will suffer a loss of 50%. How shall this transaction be reported in the financial statements? Solution:This is a non-adjusting event, because the credit loss arose as a result of fire occurring after the end of the reporting period. DEF needs to make appropriate
disclosures in its financial statements. DividendsKLM has prepared its financial statements for the year ended 31 December 20X1. On 30 January 20X2, KLM’s directors declare dividends amounting to CU 2 million. How shall this transaction be reported in the financial statements for the year ended 31 December 20X1? Solution:This is a non-adjusting event. KLM does not change the figures in its financial statements for the year 20X1, but discloses
the post-reporting-period dividends in the note on retained earnings. Going concernXYZ has a trade debtor that owes CU 50 million on 31 December 20X1. On 21 January 20X2, the debtor goes into liquidation. XYZ is informed that it will receive nothing from the liquidation. XYZ is unable to raise funds to recover from this loss, and is certain to be liquidated. How shall this situation be reflected in the financial statements for the year ended 31 December 20X1? SolutionThe financial statements to 31 December 20X1 should be produced on a liquidation basis, not a going-concern basis.
CLICK HERE to see a complete catalogue of our courses. What are adjusting events after the reporting period?Adjusting events are those providing evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are indicative of conditions arising after the reporting period (the latter being disclosed where material).
Which event after the reporting period would require adjustment quizlet?Which of the following events after the reporting period would require adjustment in an entity's financial statements? Bankruptcy of a customer, which occurs after the end of the reporting period and before the issuance of the statements, resulting in the loss of a trade receivable account.
Which of the following subsequent events events after the reporting date would require adjustment of the accounts before issuance of the financial statements?Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued? Settlement of litigation, in excess of the previously recorded liability.
Which of the following is not an adjusting event after the reporting period?* Dividends declared after reporting period will not be an adjusting event.
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